Rent in the City but Buy in the Country; (1) Finance (2) as Urban Prices Escalate, First-Timers Are Looking out of Town to Get on the Housing Ladder
Byline: NEIL SIMPSON
Sky-high house prices in big cities are forcing many first-time buyers to look long-distance to get on to the housing ladder. Increasing numbers are turning to the country or the provinces to buy affordable homes - while still living in rented accommodation and working in the city.
'People want to own property and if they can't afford to buy where they live and work they are starting to look elsewhere,' says Harry Palmer of Truman's Estate Agents in Lincoln.
'Workers also don't see the point of paying high prices for London homes if they're planning to stay in the capital for only a few years.
But they don't want to be out of the property market either, so they buy now where they plan to live in the future. They can rent out the homes until they are ready to live in them.' It sounds ideal. But just how easy is it to achieve and what can go wrong? Experts say young long-distance buyers need to be wary of three key issues.
THE RIGHT PROPERTY
Househunters depressed by high prices in London and the South East can sometimes believe property everywhere else looks like a bargain. But some homes could be cheap for a very good reason - and local estate agents love it when out-of-town buyers pick them up without finding out why.
Buying where you were brought up or where your family live means you are less likely to make mistakes because you know the area.
'The best buy-to-lets, in particular, tend to be in areas the buyers know very well and understand,' says Mike Henry, head of mortgages at Bristol & West. 'Ideally, you want a good contact in the area where you are buying who can give you the latest information on the number of rival landlords there and the likely demand from tenants.' If you are buying property purely to make money then you also need to be aware that buying cheap reduces your gains in a rising property market.
The return on money put into property as an investment is likely to become far more modest than in recent years as house price growth in the provinces is slowing.
THE RIGHT MORTGAGE
There are two ways for young first-time buyers to get mortgages to buy long-distance. The first is to apply for a standard residential loan, even though you'll be living in the property only at weekends and during holidays.
The second is to take out a buytolet mortgage when you plan to rent the property out to others fulltime.
Neither should present insurmountable problems. Lenders may not like the idea of taking on absentee owners, even those who plan to visit their distant homes regularly. But experts such as David Hollingworth of brokers London & Country in Bath, Somerset, say most applications should still be approved.
'Lenders are used to people buying in advance of a career move, for example, so the fact that your current address is some way from the property you're buying should not set any warning bells ringing.' The buy-to-let world can be more difficult, however. Lenders normally require deposits of at least 15 per cent of the purchase price and many will only take on borrowers who can prove a minimum of one year's payment history on an existing residential mortgage.
'Many lenders won't like the idea that your first mortgage is a buy-to-let,' says Lee Grandin, director of broker Landlord Mortgages in Wokingham, Berkshire. …